Scottish Government - Bankruptcy Law Review

Executive Summary

The Association of British Credit Unions Limited (ABCUL) welcomes the Scottish Government’s consultation on Bankruptcy Law Reform, and we are grateful for this opportunity to convey the views of Scotland’s credit union movement.

ABCUL welcomes many of the Scottish Government’s proposals for reforms which could deliver a debt advice, debt management and debt relief service fit for the modern era and fairer to creditors and debtors alike. In particular, we welcome the stated principle that those who can pay their debts should do so. We believe it is very important that we step back from the culture of heavily marketed debt relief for commercial profit which has grown up, and better consider the adverse impact this can have on creditors and the wider Scottish economy, not least credit unions.

In this regard, we are greatly encouraged that the Scottish Government is considering whether credit union debts should be excluded from discharge in Protected Trust Deeds (PTDs) and bankruptcies in recognition of the unique position of credit unions among lenders and other creditors in Scotland. We firmly support this proposal and will expand upon the justification for this in our response.

Following input from credit unions across Scotland, this submission outlines the views of our movement on a number of key issues considered in the consultation, including:

All applications for the Debt Arrangement Scheme (DAS) or debt relief must be submitted by properly regulated and monitored authorised money advisers;

A new Scottish Common Financial Tool should be developed with broad stakeholder input to serve as the industry-standard budgeting tool;

DAS should be the default option whenever it is assessed that an individual could repay their debts in full over a period of 8 years;

There should be a minimum debt level of £10,000 for entry into a PTD, since lower debts should be repayable through DAS;

There should be a minimum dividend of 50p in the pound for any Trust Deed to become protected, with trustees’ fees being cut – not returns to creditors;

PTDs should be allowed to run for at least five years relative to the debt to allow for a greater amount of funds to be ingathered and distributed to creditors;

The new range of bankruptcy products are to be welcomed, with strict criteria dictating which product each debtor can access – because “debtor choice” must not supersede fairness for creditors;

A debtor who does not co-operate with his/her bankruptcy should not be discharged from their debts, since debt relief is a right which must be earned and not an automatic entitlement;

All debts to credit unions should be excluded from discharge in PTDs and bankruptcies because credit unions are impacted disproportionately by debt write-off, damaging their ability to pay a dividend to savers or to lend to others in need;

All debts incurred within 12 weeks of applying for debt relief should be excluded from discharge as it is reasonable to assume that the debtor probably knew the debt would never be repaid;

The Accountant in Bankruptcy should have a more proactive role in supervising and intervening in all debt management and debt relief products, and a tighter regulatory regime for insolvency practitioners must be established and maintained.